Buffett Reports Send Wells Shares Skidding

Wells Fargo & Co. shares plummeted as much as 6% Thursday on news reports--apparently erroneous--that the bank’s largest shareholder, billionaire Warren E. Buffett, had unloaded his 7-million-share stake.

The Wells plunge added to nervousness on Wall Street, where the Dow Jones industrial average dropped 127 points after three straight days of 100-point gains. It also gave dramatic testimony to how closely investors follow Buffett and his Omaha-based flagship, Berkshire Hathaway Inc.

Concerns that the biggest and most popular stocks have risen too far, too fast have recently blunted the market’s stunning advance. Last Friday, the Dow dropped 247 points, or 3.1%, its worst one-day tumble in six years.

Two of the stocks getting the most scrutiny have been Coca-Cola and Gillette--in which Berkshire holds vast stakes. Both have fallen sharply from their midsummer heights.

Analysts said the Wells Fargo incident, plus a “Heard on the Street” column in Wednesday’s Wall Street Journal, got investors refocused on the sky-high valuations of Buffett’s holdings and of blue-chip stocks generally.

Trading in Wells shares was temporarily halted Thursday afternoon after news agencies reported that a document Berkshire filed with the Securities and Exchange Commission did not list any Wells holdings as of June 30. The reports concluded that Buffett had sold his 8% stake.

Wells scrambled to issue a statement saying that Buffett remained a “substantial shareholder” but that his Wells holdings were not shown because he had received SEC permission to keep that part of the report confidential.

Shares of General Dynamics also fell on similar reports that Buffett had closed out his 4.3-million-share investment. The company said it wasn’t aware of any change in Buffett’s holdings.

The SEC grants several dozen confidentiality requests out of more than 1,500 investment-disclosure reports filed each quarter, a spokesman said.

Although Buffett, characteristically, did not comment on the incident, analysts said it appeared unlikely he had sold much of his Wells stock. Berkshire, they reasoned, had reported realized investment gains of only $35.5 million in the second quarter, whereas the gain on a sale of its cheaply bought Wells shares would have come to as much as $1.5 billion.

Wells shares recovered after the company’s denial, closing at $260, down $7.50, on the New York Stock Exchange, only to tumble again in after-hours trading on regional exchanges and other trading services.

In composite trading, including the after-hours activity, Wells shares closed at $254.50, down $13, or 4.9%. The source of the second drop was a report--after the close of the New York Stock Exchange--that Tiger Management, a big New York hedge fund, had sold $263 million worth of Wells stock.

Wells stock got a similar jolt on May 19, skidding 5% after Berkshire’s disclosure that it had sold 300,000 shares, a relatively small chunk of its holdings.

There is plenty of reason aside from Buffett for investors to be skeptical of Wells, analysts say. The bank has gotten poor marks for the way it has integrated the former First Interstate Bancorp business after last year’s takeover.

First Interstate customers, especially outside California, haven’t taken to the Wells approach, and the bank has lost much more of its deposit base than it expected to.

Other Berkshire holdings also got battered Thursday, a day when all 30 of the Dow industrial stocks lost ground.

Coca-Cola lost 94 cents to $60.56; Gillette was off $1.44 to $86.13; General Dynamics lost 81 cents to $82.44; Washington Post Co. fell $8.44 to $422.94; and Salomon Inc. dropped 56 cents to $62.31.

An exception was Wesco Financial Corp., which gained $3.50 to $286.

As for Berkshire itself, its Class A shares fell $900 to $43,900 a share, down 9.7% from the stock’s 52-week high of $48,600.

Referring to Coke and Gillette--stocks that Buffett calls his “inevitables”--Bill Mason of Cullen Fortier Asset Management in Woodland Hills said: “These stocks are still way ahead of themselves, and so is Berkshire. But Berkshire is a cult, and true believers don’t sell.”

In early May, Buffett--answering questions at an Omaha Royals baseball game--called the U.S. stock market “fairly valued,” which he implied meant he had trouble finding shares worth buying.

But two days later, at Berkshire’s annual meeting, Buffett said the market’s level could be justified assuming that corporate earnings growth continued to be strong and interest rates stayed level or fell.

In any case, Buffett has said he pays little attention to stocks’ short-term moves and focuses more on businesses’ long-term potential.

Wally Weitz, a Buffett neighbor who runs the Weitz Value Fund in Omaha, said of the decline in Berkshire shares and its holdings: “No stock doubles and triples without 10% or 20% corrections from time to time.”

He noted that one of Berkshire’s problems is that it’s stuck with its larger positions--more than $13 billion of Coke stock and $4 billion of Gillette, for example--because there is no way it can sell out quickly without causing the stocks’ prices to collapse.

* DOW DROPS: Stocks suffered a relapse as the Dow slid 127 points. D5

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Wells Stock’s Swoon

Shares of Wells Fargo & Co. closed down $7.50 to $260 on the New York Stock Exchange on Thursday, amid concerns that billionaire Warren Buffett had sold off some part of his stake in the banking company. Wells shares have tumbled 19% from their winter peak amid disappointing earnings stemming from Wells’ takeover of First Interstate Bancorp. Weekly closes and latest:

Thursday: $260, down $7.50

Source: Bloomberg News

A Buffett Sampler

Here are some of the major stock holdings of investor Warren Buffett’s Berkshire Hathaway Corp., how the stocks fared on Thursday and their declines from their 52-week highs, versus the Standard & Poor’s 500 index.

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Thurs. close Pct. Chng. vs. Stock and change chng. 52-week high Wells Fargo $260.00, -$7.50 -2.8% -19% Wash. Post 422.94, -8.44 -2.0 -5 Walt Disney 78.88, -1.50 -1.9 -7 FHLMC 33.19, -0.56 -1.7 -12 Gannett 98.38, -1.63 -1.6 -8 Gillette 86.13, -1.44 -1.6 -19 Coca-Cola 60.56, -0.94 -1.5 -17 General Dynamics 82.44, -0.81 -1.0 -7 PS Group 13.25, -0.13 -1.0 -11 Salomon 62.31, -0.56 -0.9 -9 McDonald’s 49.63, -0.31 -0.6 -10 S&P; 500 index 925.05, -14.30 -1.5% -4%

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Note: All stocks trade on the New York Stock Exchange.

Source: Times research